Rising inflation has been one of the major economic trends so far in 2022, dominating the news cycle and leading many to question whether they should keep investing or exercise a greater degree of caution.

While the government had initially set the Bank of England (BoE) a target to keep inflation below 2% over this year, the Bank currently expects it to reach 7% over the course of Spring 2022. The Bank has responded to this by raising the base rate of interest from 0.25% to 0.50% this month in an attempt to reign in and control that inflation.

While this may seem alarming to some, in reality, it is a positive move that is designed to have beneficial medium- and long-term effects. The headline 7% inflation figure is attention-grabbing, but the BoE believes its actions will help to bring inflation back down again from Q3 onwards.

Additionally, the Bank believes that some of the underlying causes of the Spring inflation will only be in effect for the short term, stating: “Most of the causes of the current high rate of inflation won’t last. It’s unlikely that the prices of energy and imported goods will continue to rise as rapidly as they have done recently.”

What does this mean for property investors? The first obvious area that inflation will affect is the mortgage market. A rising base rate has caused a reaction from lenders who are increasing their mortgage interest rates. While it is true that not all products are becoming pricier, borrowers should be aware that the majority of mortgages will now be more expensive and take that into consideration when investing.

However, the increased cost of borrowing does not exist in a vacuum. It is also true that rents and house prices in the best markets like Manchester and the London Commuter Belt are rising at rates which are notably above the added mortgage costs.

This means that while investors should be aware of the impact inflation is having on the base rate of interest, it should not be something which puts you off on its own. The upsides of property investment are far ahead of the downsides of mortgage costs that are rising slightly, but are still at historic low levels.

It is also worth bearing in mind that more expensive mortgage products offer a natural advantage to cash buyers as your relative spending power compared to borrowers will be magnified. If you are in a position to invest with cash, this is an ideal time to do so.

The second major effect of inflation that concerns investors is on the tenant side of the equation. As inflation rises, it raises the cost of living for tenants and reduces the amount of disposable income for many. This raises questions about how rents will be impacted.

While there will certainly be a minority of people who choose not to move home due to the rising cost of living, that does not reflect the majority. The ongoing imbalance between supply and demand has pushed competition for apartments to new highs. Rightmove’s latest Rental Tracker notes that competition between tenants has increased by 94% in a year, and tenant demand as a whole has grown by 32% over the same time frame.

This reality means that rents are not only primed to remain strong for the foreseeable future, but most reliable sources also believe that they will continue growing rapidly. The same Rightmove Tracker estimates average rental growth of 5% across the country over the course of UK in spite of the impact of inflation on the cost of living.

Finally, as mentioned previously, the Bank of England believes that the rate of inflation will peak in the Spring and begin to fall towards more manageable levels over the course of 2022. With that in mind, we can have some confidence that the cost of living crisis will be temporary, and any effect it has on renters will also pass in short order.

Overall, worry over rising inflation is understandable, but the reality is that UK property has proven itself to be one of the most resilient and reliable assets on the market time and time again. Property prices and rents remain on an upward trajectory, and the underlying situation regarding a lack of new supply is no closer to being solved.

The market is buoyant, and the potential positives on offer when investing in UK property outweigh the negatives and concern caused by inflation – making this a good time to invest. Want to learn more about how UK property could be your best investment in 2022? Get in touch with our team today by clicking here.